rbi controls the indian economy by introducing the concept of repo rate and reverse repo rate. repo rate:- it is the rate at which banks borrow from rbi and reverse repo rate is the rate at which rbi lends money from banks. an increase in repo arte and reverse repo rate means an increase in interest rate which causes lower demand and which in turn causes lower inflation.
cash reserve ratio:- banks has to keep some money with rbi as per this policy. by increasing crr, banks has to keep more amount of money with rbi . this results in lowering of liquidity in the market. lowering of liquidity in the market means less money to borrow or to invest which means less demand which finally causes decrease of inflation.
higher growth means higher demand for credit which means higher inflation. rbi regulate the indian market by regulating the repo rate and reverse repo rate,crr and slr(slr does not mean self loading rifle but statuary liquidity ratio).
In order to sustain indian economy, monsoon this year play a vital role । Al nino effect which was prevelant during 2009 will not happen this year. Strong monsoon result in good production during kharif and rabi seasons which will bring huge agricultural prduction which again will boost the demand and finally the prices of food will go down leading to decrease in inflation.
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